Restraining Government in America and Around the World

Debunking the Left’s Tax Burden Deception

I testified earlier today before the Joint Economic Committee about budget process reform. As part of the Q&A session after the testimony, one of the Democratic members made a big deal about the fact that federal tax revenues today are “only” consuming about 15 percent of GDP. And since the long-run average is about 18 percent of GDP, we are all supposed to conclude that a substantial tax hike is needed as part of what President Obama calls a “balanced approach” to red ink.

In a previous post, I noted that federal taxes as a share of gross domestic product were at their lowest level in generations. The Congressional Budget Office expects revenue to be just 14.8 percent of G.D.P. this year; the last year it was lower was 1950, when revenue amounted to 14.4 percent of G.D.P. But revenue has been below 15 percent of G.D.P. since 2009, and the last time we had three years in a row when revenue as a share of G.D.P. was that low was 1941 to 1943. Revenue has averaged 18 percent of G.D.P. since 1970 and a little more than that in the postwar era.

To be fair, both the politician at the JEC hearing and Bruce are correct in claiming that tax revenues this year are considerably below the historical average.

But they are both being a bit deceptive, either deliberately or accidentally, in that they fail to show the CBO forecast for the rest of the decade. But I understand why they cherry-picked data. The chart below shows, rather remarkably, that tax revenues (the fuschia line) are expected to be back at the long-run average (the blue line) in just three years. And that’s even if the Bush tax cuts are made permanent and the alternative minimum tax is frozen.

It’s also worth noting the black line, which shows how the tax burden will climb if the Bush tax cuts expire (and also if millions of new taxpayers are swept into the AMT). In that “current law” scenario, the tax burden jumps considerably above the long-run average in just two years. Keep in mind, though, that government forecasters assume that higher tax rates have no adverse impact on economic performance, so it’s quite likely that neither tax revenues nor GDP would match the forecast.

4 Responses

Tax revenues are down because we rely on income taxes, and when official unemployment is over 9%, there are a bunch fewer tax payers to pay into the federal coffers, hence diminished income. It’s really quite simple, unless you happen to be a progressive.
The solution to dimished federal revenue is not tax-rate increases but revenue enhancers that will actually create jobs: selling some of the 650M acres of land, or at least selling drilling and mineral rights. Such sales would create immediate revenue and long-term revenue as companies employ people to explore, mine, and drill. Again, it’s really quite simple, unless you happen to be a progressive.

[…] because taxes will stay below the long-run average of 18 percent of economic output. Here’s a chart I posted last year showing that tax receipts will soon rise above the long-tun average – even if the 2001 and […]

[…] because taxes will stay below the long-run average of 18 percent of economic output. Here’s a chart I posted last year showing that tax receipts will soon rise above the long-tun average – even if the 2001 and […]